Accounting and finance Flashcards
what are accounting and finance objectives
for a new business the financial objective will often be to simply survive, ensuring it has sufficient funds to stay in the business and produce the goods or services required. It may quickly, depending upon the nature of the market it is operating in, move on to achieving ‘break even’ and beyond to a specific level of profit, or share of the market.
how and why are accounting and finance objectives used by a business
it is the fundamental way of measuring the performance of a business.
what is the need for a business to have clear accounting and finance objectives
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what is the usefulness of accounting and finance objectives to a business and its stakeholders.
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what is the importance of accounting and finance objectives in the achievement of business objectives
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What are the sources of finance?
overdraft loan trade credit factoring hire-purchase leasing long-term loans debentures (only available to Public limited companies) issue of shares sale and leaseback retained profit
what are internal sources of finance to a business
Internal sources of finance include the funds available from the sale of any unwanted assets, from retained profit and from the use of trade credit. internal sources are more likely to be available when a business is well-established.
what are external sources of finance to a business
external finance is provided by people or institutions outside the business in the forms of loans, overdrafts, shares and debentures. The use of external source of funding creates a debt that will require payment
what are short term sources of finance for a business
overdraft loan trade credit factoring hire-purchase
what are long term sources of finance for a business
loan sale of assets sale and leaseback retained profit shares (if the business is a company) debentures (if the business is a plc)
How does time affect the choice of finance for a business
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How does legal structure affect the choice of finance for a business
The legal status and size of the business: the level of profit which is set for a PLC may be substantially different from that of a sole trader.
how do quantitative factors affect the choice of finance for a business
A quantitative factor is one that is measureable. If a business has already been granted several bank loans and then applies for another, the bank will think twice about authorising it because of the amount of interest the bank has to pay. If yet another loan is allowed, the bank may wonder if the business will be able to pay back all of them. Other quantitative factors include: - Share issues - gearing - stock market etc.
how do qualitative factors affect the choice of finance for a business
A quantitative factor is not measurable, but that doesn’t mean that it isn’t important. EG- Becoming a partnership will increase the capital available but decrease control over decisions. In case of a company all shareholders have a vote, so becoming a company or issuing more shares will weaken control. if the company is a plc and pays a dividend which is out of line with the stock market, the share prices will fall, which may leave the business open to a hostile takeover.
how do external influences affect the choice of finance for a business
external factors such as the state of the economy can be important to external influence on the choice of finance. if the business is booming for the firm’s product because the economy is doing well, this will help to ensure a healthy cash flow which would mean a loan is less difficult to pay back.
